Balanced Budget Amendment Debate Gets Serious

The debate over a Constitutional balanced-budget amendment has been going on in Washington for quite some time. However, the current fiscal environment and several proposals in both chambers of Congress this early in the new session mean that the idea could garner lots of attention, and votes, this year.

On the House side at least six bills have been introduced. The most prominent is sponsored by Rep. Bob Goodlatte (R-VA); his legislation has 178 co-sponsors. As a member of the majority and a senior member of the House Judiciary Committee, which has jurisdiction over the bill, Rep. Goodlatte will have some control over whether the proposal gets voted on this year.

Action on the other side of Capitol Hill is also possible this year. Senators Orrin Hatch (R-UT) and John Cornyn (R-TX) have proposed a balanced budget amendment of their own with 19 co-sponsors so far and similar legislation was unveiled by Senators Mike Lee (R-UT) and Jon Kyl (R-AZ). And this week the first bipartisan Senate proposal was introduced by Senators Mark Udall (D-CO) and Richard Shelby (R-AL).

Below is a table comparing several different balanced-budget amendment proposals:

The idea appears to be gaining momentum on both sides of the Capitol. In her response to President Obama's State of the Union address, Rep. Michele Bachmann (R-MN) challenged the President to support an amendment, and Sen. Rand Paul (R-KY) included a balanced-budget amendment in his recently published fiscal plan.

Both Senators Hatch and Lee have committed to tying a balanced-budget amendment to raising the debt ceiling (see also here). Other lawmakers have made it clear that they will not vote to raise the debt ceiling unless it is tied to a serious fiscal plan. 

CRFB agrees that the upcoming debt ceiling vote provides a critical opportunity to make significant progress in improving our fiscal outlook. Though failing to raise the debt ceiling would be quite dangerous, so too would continuing our current fiscal path. Agreeing to a credible fiscal plan can help ease the anxiety of legislators and voters over voting to increase the debt limit, which will be necessary to avoid serious economic consequences (click here to read our debt ceiling primer to learn more).

Though ideally we would get our debt under control simply by enacting a series of tax and spending changes, reforming the budget process could help to push policymakers in the right direction - though it is important to note that those who support such measures must also be willing to identify the specific policies to achieve them. Otherwise, such mechanisms can be used to avoid making the necessary policy choices. The Peterson-Pew Commission on Budget Reform has offered a framework for reforming the budget process that includes annual budget targets and triggers to enforce those targets towards meeting medium- and long-term fiscal goals to reduce the national debt.

Though a balanced-budget amendment has many merits, and shares many features with these targets, it does raise some concerns. Most significantly, it may be unrealistic and therefore unachievable. Current deficits are so large, and fiscal projections so bad, that it may be many years before we are able to balance the budget. Instead, in our view, a fiscal plan (and budget targets) should aim to stabilize and then gradually reduce the debt as a share of GDP. Once our debt has been reduced and is on a manageable path, we may be in a better position to balance the budget and put in place a process (Constitutional or otherwise) to ensure it doesn't fall out of balance.

In addition to this concern, others have pointed out that balanced-budget amendments may prevent the use of countercyclical policies (including automatic stabilizers), and may lead to sub-optimal policy adjustments meant to achieve balance in a given year - rather than over the course of the business cycle.

Nonetheless, calls for a balanced-budget amendment are a welcome sign that Congress is seriously thinking of ways to inject more discipline into the budget process. If we want to get our debt under control, both process and policy will be needed to get us there.